PROFITABILITY STUDY FOR THE BUSINESS FORMS DIVISION OF ALLIED OFFICE PRODUCTS

PRESENTATION TEAM: Upasana Sahni Tarun Khare

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SUBMITTED TO: MS. RANJANI MATTA

Vaibhav Malik Sanchi Malhotra Sanchit Kumar Yash Agarwal

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OVERVIEW

Background Goals and Objectives Options Situation Analysis Activities Based Cost (ABC) Analysis Recommendations Summary

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BACKGROUND
Annual sales of $900 million Forms Manufacturing
* Business forms * Specialty paper

Business Forms Inventory Management Services - Total Forms Control (TFC)

Warehousing Inventory financing Forms usage reporting Inventory control Distribution (Pick pack & desktop delivery)

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BACKGROUND
Annual sales of $900 million Forms Manufacturing
* Business forms * Specialty paper

Business Forms Inventory Management Services - Total Forms Control (TFC)

Warehousing Inventory financing Forms usage reporting Inventory control Distribution (Pick pack & desktop delivery)

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GOALS & OBJECTIVES

Review Current State Identify Areas for Improvement Increase ROI on TFC from 6% to 20%

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STORAGE & INVENTORY FINANCING

Dont you think we should do something to get that old inventory moving? --Tim, Kansas City, MO Distribution Facility

Inventory Obsolescence Excess Inventory Cost of Capital Customer does not pay for inventory until requisition submission

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REQUISITIONING
Ive gotten to the point where I know the customers so well, that all the order information is easy. The only thing that really matters is how many lines I have to enter. Hazel Nutley, Data Entry Operator

310,000 requisitions per year Each requisition average 2.5 lines Reduce data entry - incorporate purchase history in requisition process; determine frequent reorders Institute minimum requisition requirements; under $X, extra fee charged

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STOCK SELECTION / PICK PACK

Almost is everything pick pack nowadays. No one seems to order a carton of 500 items anymore. --Rick Fosmire, Warehouse Supervisor

90% of all orders are pick pack Reduce pick pack orders: Work with Allied to reconfigure cartons to meet top 40 accounts buying patterns

DESKTOP DELIVERY Currently, no extra charge to clients for this time intensive activity Implement desktop delivery fees

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ORDER ENTRY & BILLING

Ensure requisition process /order entry / billing is a one-step process Goal: Reduce redundant data entry

FREIGHT Cost coverage set fee is not equitable across customer base Implement pass-through freight cost leveraging new computer system

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ACTIVITY BASED COST ANALYSIS ACTIVITY AND COST DRIVERS

Activity
Storage

Cost Driver
Number of Cartons

Activity Based Cost

1.550

Requisition Handling

Number of Requisitions

1.801

Basic Warehouse Stock Delivery

Number of Requisition Lines

0.761

Pick Pack

Number of Pick & Requisition Lines

0.734

Data Entry

Number of Requisition Lines

.612

Desktop Delivery

Number of Desktop Deliveries

.250

Total

5.708

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SERVICES BASED PRICING (SBP) Should TFC implement the SBP system? Give reasons
Properly allocates costs Fair to all customers Many customers will face reduced prices Profit opportunity is spread over many firms and allied is not as dependent on a small number of firms for positive profits. Profits margins will increase.

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RECOMMENDATIONS ACTIVITY BASED MANAGEMENT (ABM)

Management Philosophy Focus on cost reduction Make informed decisions Create & maintain a competitive advantage Reduce non-value added activities

Activity Based Costing (ABC)

Storage & Inventory Financing Charge 1.5%/mo. for on-hand inventory > 9 months
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RECOMMENDATIONS SUPPLY CHAIN MANAGEMENT (SCM)

Optimize Warehouse Space Reconfigure aisles Optimize Customer Inventory Levels Incorporate Just In Time Inventory (JIT) System with Allied (for 179 customers that represent 72% of sales) Establish Preferred Vendor Price Strategy (PVPS) with Allied Engage Five and one for Competitive Market Analysis (CMA) Implement Services Based Pricing Structure

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What managerial advice do you have for Allied about the Total Forms Control (TFC) business?
Managerial Advice: Adjustment of the management area to level of service. The reason for this is because although customer account A and B both make annual sales of $79,320 with cost of product being $50,000, the current system charged equal service fee. Although these accounts were same only in the products being sold, they were different in the level of service required by Allied. A review on the true and fair to the clients. That is all similar size clients need fair treatment. Service and treatment must be equal to all clients; whether small or large Fees must be charged for usage of distribution centre at level of services provided to clients.

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SUMMARY
Allied Philosophy We know what you need the right product at the right place at the right time.

Preferred Vendor Price Strategy + Competitive Market Analysis + Distribution Optimization Plan =

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Allied Business Forms Division Success!

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REFERENCES:

Management Control Systems by: Robert N Anthony, Vijay Govindarajan

http://www.icmrindia.org/courseware/Management%20Control%20Systems

http://www.infibeam.com/Books/info/GHOSH-N/Management-Control-Syste

http://books.google.com/books?id=TNAO63-Tm08C&pg=PA163&source=gb

http://books.google.com/books?id=TNAO63-Tm08C&pg=PA85&source=gbs

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THANK YOU & HAVE A NICE DAY!!!

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